The Problem of
Foreclosure Titles
In NSP Acquisitions
Why The Title of the Foreclosure Sale
Buyer Is Often Defective
How Can We Deal With the Problem?
Securitization
Flow Chart and
Structure
Transfer of Promissory Note
 Negotiable instrument under Article 3 of
the UCC
 Transferred by:
• Endorsement
• Delivery of the instrument
• Acceptance of delivery
• Negotiation = Endorsement + Delivery +
Acceptance
Transfer of Mortgage
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Mortgage is a real estate instrument
Subject to the statute of frauds
Must comply local real estate law
Transferred by:
• Written assignment
• Delivery of the instrument
• Acceptance of delivery
• Recording of transferred mortgage
• “Assignment” = Written Transfer/Assignment
+ Delivery + Acceptance + Recording
Notarization Requirements
 Most state laws require “strict” compliance
 Signer must admit, by oath or affirmation, in the
PRESENCE of notary to having voluntarily
signed the document, and signer’s capacity
 Signer must make the OATH or AFFIRMATION
before signing
 Must identify the signer by a federal or state
issued photographic ID
 Penalties include civil and criminal
 Felony in most states to take a false
acknowledgement
 Document is invalid with improper notarization
The Alphabet Problem
With Securitized Transfers
 The loan closed in the name of the
Broker/Lender
 Broker is funded by Warehouse Line of Credit
 Warehouse Lender then sells paper to a
Special Investment Vehicle (SIV)
 SIV then sells paper the Sponsor/Depositor
 Sponsor or Depositor then transfers to Trust
How Many Transfers
A-Transfer: Consumer to Broker
B-Transfer: Broker to Warehouse Lender
C-Transfer: Warehouse Lender to SIV
D-Transfer: SIV to the Depositor or Sponsor
E-Transfer: Depositor or Sponsor to Trust
How Many Documents
 Four assignments and deliveries and
acceptances of the Mortgage
 Four endorsements and deliveries of the Note
 Eight separate notarizations
 Eight UCC-1 financing statements
 Four recordings
 Four filing and transfer fees
The Allonge
 A paper attached to a negotiable note
 Purpose is to provide written endorsement
 Only used when back of negotiable
instrument is FULL (no room)
 No need for notarization
 Simple signature and title sufficient,
as with endorsement on note
Similar ABCDE Problem
With the Mortgage Instrument
A. Consumer must sign and deliver to Broker
B. Broker must assign and deliver to the Warehouse Lender
C. Warehouse Lender must assign and deliver to the SIV
D. SIV must assign and deliver to the Depositor
E. Depositor must assign and deliver to the Trust
And all these assignments must be recorded!
Who Holds the Bearer Paper
and Mortgages for the Trust?
 Normally a third-party bank that provides
document custody services to the trust
 Provides trailing document filings
 Provides custody chambers for all members
 Executes assignments for members
 Execute endorsements for members
 Executes deliveries and acceptances
 Provide on-line document status certifications
What Does Trust Really Hold?
 Electronic data with loan numbers & collateral
descriptions
 Electronic image of the original deed of trust
 Electronic image of the original mortgage note
 Rights in the documents by way of UCC-1
financing statements and the pooling & servicing
agreements
The 3d-Party
Outsource Providers
 Fidelity National Default Services
 First American National Default Services
 National Default Exchange, LP
(Barrett Burke Owned Entity)
 Promiss Default Solutions
(McCalla Raymer Owned Entity)
 National Trustee Services
(Morris Schneider Owned Entity)
 LOGS Financial Services
(Gerald Shapiro Owned Entity)
What Do the Outsource
Providers Do for the Servicers?
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Create Assignments
Create Allonges
Create Endorsements
Sign documents as if they were the VP or Secretary
of a Bank, SIV, Depositor, Sponsor or the Trust
Notarize these documents
Create Lost Note Affidavits
Create Lost Assignment Affidavits
Create Lost Allonge Affidavits
Draft court pleadings and notices
Draft default correspondence, reports, etc.
How to Identify a Defective
Endorsement or Allonge
 Allonge can never be used to transfer a
mortgage
 Allonge can never be used if there is enough
room on the original mortgage note for the
written endorsement
 Note is endorsed and not assigned
 Date of the endorsement is before or after the
date of the registration of trust
 And much more …
Defective Endorsements
 Notary is from Dakota County, Minnesota
 Notary is from Hennepin County, Minnesota
 Notary is from Jacksonville, Florida
 Signor’s company has no offices in notary’s state
 Date of endorsement and date of notarization
are different
 Signor’s name is stamped – not written in script
 Signor claims to have signing authority
but no authority attached
What About the Mortgages?
 Assignments and delivery follow same model as with the
notes
 MERS is used to avoid registration of each assignment
with local register of deeds
 MERS claims no beneficial interest in the note
 MERS claims no ownership rights in note or mortgage
 MERS claims it is nominee for true owner
 MERS delegates signing authority to all MERS members
to sign documents as officers of MERS
 MERS does not supervise any of it’s designated signors
 MERS is not registered as a foreign corporation in most
states
How Does Trust
Establish Lawful Ownership?
 Unbroken chain of note endorsements and
acceptances from A to B, B to C, C to D,
and D to E
 Unbroken chain of mortgage assignments and
deliveries and acceptances from A to B, B to C,
C to D, and D to E
 Unbroken chain of UCC-1 financing filings
throughout the chain
 Unbroken chain of recorded mortgage
assignments
But What Is Filed
In a Typical Foreclosure?
 Complaint alleging that the borrower (A)
executed a note and mortgage in favor of the
plaintiff (E)
 Note and mortgage from borrower (A) to
originating lender (B) attached
 Sometimes a purported mortgage assignment
from (B) to (E) attached, also purporting to
assign the note
 This assignment always defective, often not
recorded
The Paper Trail and
The Lack of Truth in Labeling
 Electronic data
 Fake dates & forged signatures
 False notarizations
 False assignments
 Fake endorsements
 Fraudulent lost note affidavits
 Recreated documents & records
 Allonges and more
Is the Trust Really Secured?
 MAYBE – But it would be very difficult for any
securitized trust to produce a valid set of original
and unbroken assignments and endorsements
 Even if the trust produces ALL of the required
documents, there is still the issue of the legality
of the role of MERS on all required documents
for recording
Questions?
David Wiechel
Telephone 937-765-4546
Email dwiechel@woh.rr.com
111 East Cecil Street
Springfield, OH 45504